a16z crypto: It's time for cryptocurrency to move from chaos to order

Written by Miles Jennings and Brian Quintenz, General Counsel and Head of Global Policy, a16z Crypto, respectively

Compilation: Luffy, Foresight News

While the summary judgment in the Ripple case is a potentially major victory for cryptocurrencies, regulatory uncertainty isn’t getting any better.

Many see blockchain and cryptocurrencies as a breakthrough technology that unleashes creativity; while others see it as just another internet fad.

No matter how you look at it, it’s indisputable that consumers and entrepreneurs in the nascent cryptocurrency and Web3 space face enormous regulatory uncertainty, which hinders the legitimate development of the industry and breeds bad behavior.

A federal district court has issued a highly anticipated summary judgment in the Securities and Exchange Commission (SEC) lawsuit against Ripple Labs and its two founders. The ruling found Ripple’s direct sale of its crypto asset XRP to institutional investors to be a securities offering, consistent with earlier cases of applying securities law to initial coin offerings (ICOs). But the ruling was a blow to the SEC by not extending the scope of securities laws to sales of XRP to individuals by Ripple and its founders through certain crypto asset trading platforms.

While a potentially major victory for cryptocurrencies and a response to the SEC’s continued “provocation,” the ruling also has a bewildering set of results that have long plagued the crypto industry. due to regulatory uncertainty.

What decisions should entrepreneurs make? For one thing, the ruling is not the final decision on the issue. This means that entrepreneurs may choose to continue current industry practice, whereby issuers of cryptoassets rely primarily on a useful but incomplete framework for decentralization provided by the SEC starting in 2019, a process that eases the burden of cryptoassets on consumers. some of the risks. But even some members of the SEC have tried to distance themselves from the framework, which has proven not to be clear or robust enough to be effective.

On the other hand, the ruling opens up an entirely different avenue for crypto asset issuers, as it stipulates that crypto asset sales on trading platforms are not governed by securities laws. But the ruling also contradicts the SEC’s recent actions against several major crypto asset exchanges, including Coinbase.

Ultimately, the ruling showed that the rules were not clear at all. In the absence of clear rules, the SEC’s current approach to law enforcement regulation of cryptocurrencies is harming innovation in the United States.

This uncertainty has long slowed the pace of innovation and been a breeding ground for bad behavior. Responsible practitioners are affected by regulatory enforcement actions, while unscrupulous companies introduce products that flagrantly violate longstanding rules: often beyond the purview of U.S. authorities until disaster strikes.

Unfortunately, the situation is not only not getting better, it could be getting worse. Unless Congress acts quickly.

Applying an 80-year-old practice to a new technology presents significant challenges. The unique benefits and risks of blockchain and cryptocurrencies require new approaches to regulation. Legitimate innovators and consumers of new products need clear rules to build practical products that are safe to buy and use, and whose use cases go well beyond financial speculation.

The only way forward is through thoughtful, carefully revised legislation that protects consumers from scams while still embracing the innovation of blockchain technology. The rest of the world has already borne out this conclusion: America is falling behind.

So how do you not fall behind and avoid more confusion and uncertainty? We recommend that U.S. lawmakers do three things:

First, ensure that both consumers and investors are protected by requiring centralized companies to register and be regulated. Regulators should investigate risks arising from escrow relationships, conflicts of interest, and the use of crypto assets in illicit finance. We have seen many examples of such regulatory failures.

Second, any legislation should provide a path to compliance for those who have been building decentralized networks and legitimate businesses in this uncertain environment.

Finally, laws and regulations should appropriately incentivize decentralization and community ownership (key features of cryptocurrencies and blockchain technology) to advance the technology to create real benefits for the public and the next generation Internet.

Fortunately, there are some hopeful signs: Both the House and Senate have made progress on such legislation. Patrick McHenry (R-North Carolina) and GT Thompson (R-Penn) along with Senators Cynthia Lummis (R-Wyoming) and Kristen Gillbrand (D-N.Y.) sought to achieve meaningful consumer adoption through a legislative framework that promotes responsible innovation Protect. We urge Congress to consider and pass such legislation as soon as possible before it is too late.